JOSEPH GIGLIO: A safety net for the looming trade war

Saturday

Aug 4, 2018 at 3:01 AM

Much has been written about the continuous maelstrom of trade and tariffs. Articles are legion and lengthy, and the onslaught of words is entirely shorn of humor. Is the difference between trade and "free trade" the same as the difference between love and "free love?" Many of these articles fail the memory test.

Unlike academic arguments, debates about trade and tariffs are waged at a pitch of high intensity because the stakes are so high. Often overlooked is Trade Adjustment Assistance, a program with avid supporters and fierce critics.

TAA is the primary policy response to dislocations caused by trade and globalization. This federal program provides assistance to workers who have involuntarily lost their jobs to foreign competition, either because their jobs moved outside the United States or because of an increase in directly competitive imports. It also assists those whose hours and wages are reduced as a result of increased imports, whether or not that had anything to do with a trade deal. Congress created the program as part of the Trade Expansion Act of 1962, but it was little used until the Trade Act of 1974 eased eligibility requirements.

TAA offers eligible recipients a variety of benefits and reemployment services. It provides expanded unemployment insurance benefits, two years of job training, job search and relocation allowances, tax credits for health insurance coverage, wage insurance for workers over 50 years of age and related subsidies.

The legislation was initiated by President John F. Kennedy as a way of building domestic support for multilateral trade negotiations. The program has undergone changes through the years. Since free trade policies are expected to bring overall economic gains, there is a rationale for providing assistance to workers whose jobs are sacrificed for the greater good. Put differently, benefits of free trade, which are diffused throughout the economy, exceed its costs, which are concentrated. The winners should compensate the losers and help train or retrain American workers to become more competitive.

The original legislation faced strong opposition, but with labor’s backing Trade Assistance Adjustment became law. TAA has been the necessary political price for keeping free trade on track, the sop to displaced domestic workers.

Critics of the program are wont to complain that despite its generosity, the program has been ineffective. For example, one study of TAA recipients shows that their incomes after returning to work were no better than those of returning workers not eligible for TAA.

Fairness is also an issue. Why should someone get special assistance after losing a job because of trade, but not if they lose a job because of changes in technology and consumer preferences, domestic competition or simple business failure? After all, they still have bills to pay.

On the other hand, advocates argue that TAA has provided badly needed assistance to more than 2.2 million workers who lost their jobs to globalization since the Trade Act of 1974 and is an essential complement to the broader trade agenda. They point to data showing that nearly 77 percent of program participants found employment within six months of completing their training. They are silent on the quality of the jobs and whether they have a positive effect on wages for program participants.

While the United States may gain from free trade policies at the macro level, the losses are concentrated and inflict real distress on affected workers. Free trade has cut consumer costs, reduced poverty around the world and helped multinational corporations prosper; the United States should take care of workers who have paid the price.

Regardless of the dimensions of the coming trade and tariff wars and chaos in the international trading system, some version of Trade Adjustment Assistance is essential to provide a safety net, not just a fig leaf, for those who inevitably bear the cost of trade and tariff policies.

Joseph M. Giglio is a professor of strategic management at Northeastern University's D'Amore-McKim School of Business.

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